In the Financial Times today Martin Wolf outlined the potential consequences for both of the distinct paths the U.S. and the U.K. are beginning to head down. In the U.K. it was announced by the government that the country would venture down the austerity trail in order to end the yearly high deficits that have been adding to the countries already high debt load. Today George Osborne, Chancellor of the Exchequer, announced the largest reduction in public spending since World War II for the country. The U.K. central government plans to cut spending by $128 billion through 2015 by eliminating up to 500,000 public sector jobs, raising the pension age to 66 by 2020, and increasing taxes. Meanwhile the U.S. has not worked to reduce the annual budget deficits, this summer extended the eligibility for unemployment benefits for up to 99 weeks and has not confirmed whether or not the tax cuts from 2001 and 2003 will expire.
As Wolf concluded, “The contrast with the US should at least be instructive. We will never know whether disaster was indeed imminent [for the U.K.]. But the British are going to learn much and so will the rest of the world.” So begins the great experiment; Stimulus v. Austerity.